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Tuesday, May 31, 2016

Hot Summer in the City at Anheuser-Busch

Memorial Day traditionally marks the beginning of the lurch toward the coming dog days of summer. Official summer won't arrive for a few weeks, but a few days of warm weather will give us a taste of what's on the horizon. For better or worse.

Now seems like a good time to check in again with our good friends at Anheuser-Busch. Summer is a busy time for them and, anyway, their efforts to maintain market share using unscrupulous strategies and initiatives are drawing scrutiny and bad press.Summer Discounting
AB launched aggressive discounting programs in supermarket chains over the Memorial Day weekend and beyond. In one scenario, customers buy an 18-pack of Bud/Bud Light and get a second at 50% off. In another, you buy two 12-packs and get a third for a penny.

Convenience stores in many areas are seeing similar deals targeting the holiday weekends of summer. You'll see 12-packs of Bud/Bud Light selling for $9.99 coinciding with Memorial Day (through June 6), Fourth of July and Labor Day weekends. 12-packs will sell for $10.99 the rest of the time, according to reports.

The discounting extends to AB craft/crafty product, brands like Goose IPA and Shock Top, in some markets. Buy two six-packs of these brands and get a third for free. These offers may or may not be linked to the various holiday weekends.

Naturally, AB says there's no summer price war. They're just trying to attain an appropriate "price mix." Sure thing. In fact, this kind of price cutting is pretty cutthroat and something only Anheuser-Busch could pull off thanks to production and distribution efficiencies.

How much will the discounting gambit help or hurt? Hard to say. The big idea is to hang onto Bud/Bud Light drinkers while at the same continuing to build the market penetration of their craft and crafty brands. The only brand in the AB premium family showing growth is Michelob Ultra, perhaps a sign that Millennials will go for light beer when they get fat.

By the way, it's worth noting that AB's craft acquisitions are up 40 percent for the year in IRI, outperforming the craft segment as a whole. Goose Island is a big part of that and a nice example of what you can do with a flaccid brand when you have a massive, nationwide distribution network. Elysian, Golden Road, Blue Point and Four Peaks and Breckenridge are all up.Branch Distributors
As many who stop by here know, the AB distribution network is a topic of interest for the Department of Justice as it reviews the pending acquisition of SABMiller. Beyond the issue of wholly-owned branch distributors is an incentive program that appears to violate anti-trust laws.

You know how it works, right? AB-affiliated distributors, owned and independent, are financially incentivized to advertise and sell AB brands. Distributors that tow the company line by moving 98 percent of their sales in AB brands receive the bulk of their advertising budget back.

This practice, contrary to the stated position of AB suits, is almost certainly a violation of fair trade regulations because it is designed to thwart promotion of smaller craft brands. The DOJ is evidently talking to craft brewers and distributors to develop a full understanding of how AB's incentive program restricts market access and hurts small brewers.

Just as branch distributors should be considered illegal, so should anti-competitive incentive programs. We can only hope DOJ approval of the ABI/SABMiller merger is contingent on the resulting behemoth agreeing to meaningful rules on distributor ownership and incentive programs. Otherwise, this merger/acquisition is big trouble for craft brewers.

Seattle Slip
You are surely aware of the recent situation in Seattle, where the Washington State Liquor and Cannabis Board (WSLCB) is charging AB with exercising exclusivity arrangements at several concert venues. The violation carries a fine of $150,000 and a three-day suspension. The fine is pocket change to the behemoth. The suspension will never happen.

Investigators discovered two venues that sold only beer available through Anheuser-Busch distributors. That alone is not illegal and would not have triggered any action. Except a manager at one venue told investigators that the venue did, indeed, have an agreement to sell only products provided by an AB distributor. In Washington, as in most states, that arrangement is illegal.

In fact, anyone who has attended a concert or sporting event has probably been subjected to this kind of subterfuge. You know the fix is in when you walk around a stadium or concert hall searching for a decent beer and find nothing but swill. Only in recent times have we started to see a shift toward better beers in these situations and now only because consumers demand it.

We don't know how the Seattle case will turn out. Consistent with past behavior, AB denies that it did anything wrong and has the resources to make sure the case drags on for years, if necessary. My guess is they will eventually pay all or some portion of the fine without admitting guilt. And the cycle of forcing them to comply with legitimate laws will start anew.